Go Bigger, Young Men

While it may be exaggerated to claim that gaming is changing the world, there is no doubt that gaming, and mobile gaming in particular, is changing the landscape of technology business. Since the introduction of Iphone and other smartphones, mobile games has been so popular that it has even incited decries about stupid games from the venerable New York Times.

Nowhere is this truer than China. In 2012 the overall revenue for all app download hovers around 6 to 7 million USD a month, and gaming app revenue, ranging from 4 to 5 million USD a month, account for most of that.

Both of these figures show vast growth from just a year before. In May 2011, overall app revenue was 3 million USD for the month, with gaming apps accounted for half of that. This figure remained essentially flat with little growth from the next five months. October 2011 was the beginning of the explosion, as gaming revenue exceeded 4 million USD for the month, while the overall revenue exceeded 6 million USD. The data shows the growth in app revenue is almost entirely driven by gaming apps, as the overall revenue grows and falls almost exactly in sync with gaming revenue, while revenue from other apps remains almost constant.

What accounts for the growth of gaming apps? As early as 2009, data has already shown that iPhone app prices are dropping, and a lower price almost always guarantees a higher ranking in term of downloads. So it’s no surprise that once games become free, more people would download them.

As of May 2011, most of the gaming apps downloaded are free. Even in countries like the United Kingdom that has a high rate of paying of gaming apps, free gaming still reign supreme, accounting for more than 88% of the download. A year later, free games upped the ante. Overall, free games account for 95% of download worldwide for May 2012, a growth of more than 4% compared to a year ago.

Nowhere is this trend more extreme than China. Even in 2011, Chinese users downloaded more than 96% of their games for free, the highest rate for free games among the major markets. In 2012, this rate is pushed even more extreme, with 99% of the games downloaded being free.

The rise of free games is coupled with the rise of a new pricing strategy. When The Gray Lady covers it, you know it has gone main stream. Such is the case with the so-called freemium strategy, which allows users to download the game for free, and make money on the back end, when users make In App Purchases (IAP). While The Times itself has been running and succeeding with a freemium strategy, it was far from the first to cover the phenomenon. Fermium became a full-fledge movement at the end of 2010, when technology blogs starting to notice and analyze it.

The rise of freemium games has helped on two fronts: the free part allows games to be downloaded more than ever, while the paying part allows game makers to make more money than ever. In Jan 2011, when it was still early in the game, the top 100 apps with IAP and without IAP were monetizing the same amount per app. By Dec 2011, apps with IAP were monetizing 2.2X more than apps without IAP.

With more gaming apps being downloaded, and each one making more money than before, it’s no wonder that many indie game makers are doing very well. After all, a top 10 hit in China alone garners more than a million download, while a ranking in the top 100 guarantees more than 100,000 downloads.

Is there a solution to the problem? They could abandon ship, but the app market is a growing pie. They could try to build other kind of apps besides gaming, but the market seems very saturated.

They could build better games that monetize better, but there no one can guarantee its success in a crowded market. In addition, they cannot go back to the premium strategy or lower price, since both alternatives are effectively killed by freemium.

There is, however, a way out of all this, and it requires (just a bit of) out of box thinking. What about the Ipad? Of course, ever since its inception, many developers have had its eyes on the Ipad as a chance to expand, even redirect iOS universe’s trajectory. As gaming platforms, Ipad and Iphone have been compared side to side from the very beginning.

So far, Iphone’s bigger counterpart has not been able to exceed the processor’s economic value. So far, app revenue from Ipad download only accounts for 30% of the entire iOS pie. For game developers, another disappointing news is that most people do not prefer Ipad as a gaming device. Data from the Chinese market shows that more than 80% of the newsstand app revenue goes to Ipad, and the tablet also accounts for more than half of the app revenue derived from productivity and business tools. This is in direct contrast with gaming, where Iphone still dominates with more than two third of the gaming revenue while Ipad clings on to the remaining one third.

Yet there are many reasons why we shouldn’t dismiss Ipad as a gaming platform. First of all, there are the different configurations and purposes of the two devices. Iphone is the essential mobile computing device, while Ipad is billed as the terminator of the PC. The difference has made profound differences for the devices’ fate as gaming platforms. Richard Hilleman, chief creative director at the gaming giant Electronic Arts, once generalized the different usage of the two devices. “A phone game should be played over 90 seconds, like an arcade game”, while, “people play on tablets for 10 minutes”. Games on both devices are different from traditional PC games, where “they are typically played for 22-30 minutes”. Because of the difference, simply transplanting games for Iphone to Ipad won’t work. Good Ipad games must be tailored specifically for the device.

Another reason for Iphone’s dominance in term of revenue is simply the fact that there is more Iphone around. Not only is Iphone around longer, but it is also easier when you do not intend on over turning on entrenching industry. This may soon change, however. It is estimated that by 2015, tablets will outsell PCs, making another one of Steve Jobs’ prediction come true: PCs will still be around, but they will be “trucks”, fulfilling essential tasks, but it is the tablets that will become “cars” and become ubiquitous. That’s one of the reasons why iPad downloads grew 200% in 2011, outstripping iPhone’s 70% growth.

With these factors in mind, it seems that while game developers cannot forgo the Iphone market, now maybe the right time to turn their attention to Ipad. Bigger may not always be better, but in this case, bigger is where opportunities lie.

Yang is currently the brand and media director at Elitime Media & Consulting. He has published and translated seven books, and several of his works have been translated and published in areas such as Taiwan and South Korea. Yang has also contributed pieces and columns to The Beijing News and other major media outlets.